U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended May 31, 2000
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
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(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
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(Address of principal executive offices) (Zip Code)
505-247-2384
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Issuer's telephone number, including area code
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 monts and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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State the number of shares of outstanding of each of the issuer's
classes of common equity, as of the latest practicable date. As of
May 12, 2000 - 2,803,763 shares $1.00 Par Value
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INDEX
Page No.
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PART I. Financial Information
Consolidated Balance Sheets
May 31, 2000 and November 30, 1999 1
Consolidated Statements of Income
Second quarter ended
May 31, 2000 and May 31, 1999 2
Consolidated Statements of Cash Flows
Second quarter ended
May 31, 2000 and May 31, 1999 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5 - 7
PART II. Other Information 8
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<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 2000 AND NOVEMBER 30, 1999
<S> <C> <C>
ASSETS 2,000 1999
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 38,768 $ 17,689
Receivables, less allowance for doubtful accounts 123,107 182,652
Receivables from affiliates and related parties 505,711 481,210
Inventories 182,817 395,153
Prepaid expenses and deposits 10,155 17,745
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Total current assets 860,558 1,094,448
PROPERTY, PLANT AND EQUIPMENT, at cost 3,048,635 3,160,308
Less accumulated depreciation and depletion (1,328,818) (1,336,409)
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1,719,817 1,823,899
INVESTMENT IN UNCONSOLIDATED AFFILIATES 2,812,654 2,884,323
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Total assets $ 5,393,029 $ 5,802,670
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term debt related party $ 175,000 $ 175,000
Current portion of long-term debt 899,071 993,940
Trade accounts payable 300,301 319,450
Deferred obligations to related parties 3,982,268 3,707,255
Other current liabilities 160,077 249,068
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Total current liabilities 5,516,717 5,444,713
LONG-TERM DEBT, less current portion 481,763 493,517
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized 6,000,000
shares, issued and outstanding 2,803,763 shares
in 2000 and 1999 2,803,763 2,803,763
Additional paid-in capital 5,871,218 5,871,218
Accumulated deficit (9,280,432) (8,810,540)
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Total stockholders' investment (605,451) (135,559)
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Total liabilities and stockholders' investment $ 5,393,029 $ 5,802,670
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The accompanying notes are an integral part of these consolidated
statements. The 2000 and 1999 financial information is unaudited.
</TABLE>
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<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SECOND QUARTERS AND SIX MONTHS ENDED MAY 31, 2000 AND 1999
Second Quarter Six Months
MAY 31 MAY 31
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
REVENUES & OTHER ITEMS:
Sales $ 560,120 $ 293,371 $1,050,849 $ 656,884
Interest income 58 775 188 804
Gain (loss) on sale of equipment 54,537 - 110,232 -
Income (loss) from affiliates:
Equity in earnings (39,617) (270,064) (68,498) (570,062)
Consulting fees - 15,000 7,500 30,000
Other income - - - 9,315
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Total revenues 575,098 39,082 1,100,271 126,941
EXPENSES & OTHER ITEMS:
Cost of sales 525,499 305,306 931,276 683,042
General and administration 168,075 162,847 342,058 328,656
Interest 62,183 32,167 126,912 64,819
Depreciation and amortization 63,821 50,284 129,446 101,415
Loss on sale of property - 817,110 - 918,110
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Total costs and expenses 819,578 1,367,714 1,529,692 2,096,042
Pretax income (loss)
from continuing operations (244,480)(1,328,632) (429,421)(1,969,101)
Provision for income taxes - - - -
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Net income (loss)
from continuing operations $(244,480) $(1,328,632)$(429,421)$(1,969,101)
DISCONTINUED OPERATIONS:
Reduction in reserve
for estimated losses - 973,246 - 973,246
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Net income (loss) $(244,480) $ (355,386) $(429,421) $(995,855)
EARNINGS (LOSS) PER SHARE:
Income (loss) from
continuing operations (0.09) (0.42) (0.16) (0.62)
Income (loss) from
discontinued operations - 0.31 - 0.31
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Net income (loss) per share $ (0.09) $ (0.11) $ (0.16) $ (0.32)
=========== =========== ========== ==========
Weighted Average Number of Shares
of Common Stock Outstanding 2,761,960 3,161,297 2,761,960 3,161,297
The accompanying notes are an integral part of these consolidated
statements. The 2000 and 1999 financial information is unaudited.
</TABLE>
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<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 2000 AND 1999
Six Months Ended
May 31
2,000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $ (429,421) $ (1,969,101)
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 129,446 101,415
Equity in loss of affiliates 68,498 570,062
Loss from sale of property - 817,110
(Gain) on sale of equipment (110,232) -
Changes in assets and liabilities:
Decrease (increase) in receivables 35,044 (294,968)
Decrease in inventories 195,655 138,499
Decrease (increase) in other current assets 7,590 (33,115)
(Decrease) increase in trade accounts payable (19,149) 180,024
Increase in accrued officer salaries 275,013 195,450
(Decrease) increase
in other current liabilities (88,991) 49,697
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Total adjustments 492,874 1,724,174
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Net cash provided (used) by operating activities 63,453 (244,927)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property - 600,000
Proceeds from sale of equipment 128,214 -
Capital expenditures (63,966) (374,517)
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Net cash provided by investing activities 64,249 225,483
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in short-term debt (94,869) (73,937)
(Decrease) increase in long-term debt (11,754) 104,485
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Net cash (used) provided by financing activities (106,623) 30,548
Net increase in cash and cash equivalents $ 21,079 $ 11,104
Cash and cash equivalents at the beginning of the year 17,689 41,220
Cash and cash equivalents at the end of the year $ 38,768 $ 52,324
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 40,595 $ 14,136
The accompanying notes are an integral part of these consolidated
statements. The 2000 and 1999 financial information is unaudited.
</TABLE>
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FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying statements, which should be read in conjunction with the
Consolidated Financial Statements included in the November 30, 1999 fiscal
year end Annual Report filed on Form 10-KSB, are unaudited but have
been prepared in the ordinary course of business for the purpose of providing
information with respect to the interim periods, and are subject to audit at
the close of the year. However, it is the opinion of the management of the
Company that all adjustments (none of which were other than normal recurring
accruals) necessary for a fair presentation of such periods have been
included.
The Consolidated Financial Statements prepared for fiscal years 1999, 1998,
1997, 1996, 1995,1994, 1993,1992 and 1991 were unaudited because the Company
elected to not incur the expense of an audit and to conserve its cash for
other corporate requirements.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Second quarter ended May 31, 2000 compared
to the second quarter ended May 31, 1999
For the second quarter ended May 31, 2000 the Company had a net loss from
operations of $244,480 or $0.09 per share as compared to a net loss of
$355,386 or $0.11 per share for the same period last year. Included in the
results for the second quarter ended May 31, 1999 was a nonrecurring loss of
$817,110 from the sale of property and a nonrecurring gain of $973,246 from
the reduction in reserves for estimated losses related to discontinued
operations at L-Bar Products.
The Company's revenues for the second quarter were $575,098 as compared
to $39,082 for the same period last year. The revenues for the quarter
increased because of a reduction in equity losses from an affiliate and an
increase in sales. The sales at the Company's silica sand operation increased
as its glass customer increased it usage of the Company's low iron sand
product. The results for 2000 also include a nonrecurring gain of $54,537
from the sale of surplus equipment.
The general and administration costs increased slightly from $162,847 to
$168,075. Some of the expenses contained in the general and administrative
costs pertaining to salaries of the officers and deferred compensation
have been accrued but not paid as the Company is conserving its cash.
Six months ended May 31, 2000 compared
to the six months ended May 31, 1999
For the six months ended May 31, 2000 the Company had a net loss from
operations of $429,421 or $0.16 per share as compared to a net loss of
$995,855 or $0.32 per share for the same period last year. Included in the
results for the six months ended May 31, 1999 was a nonrecurring losses of
$817,110 and $101,000 from the sale of property and settlement of certain
obligations related to L-Bar Products, respectively, and a nonrecurring gain
of $973,246 from the reduction in reserves for estimated losses related to
discontinued operations at L-Bar Products.
The Company's revenues for the six months were $1,100,271 as compared to
$126,941 for the same period last year. The revenues for the six months
increased because of a reduction in equity losses from an affiliate and an
increase in sales at the Company's silica sand operation. The results for
2000 also include a nonrecurring gain of $110,232 from the sale of surplus
equipment.
The general and administration costs increased slightly from $328,656 to
$342,058. Some of the expenses contained in the general and administrative
costs pertaining to salaries of the officers and deferred compensation
have been accrued but not paid as the Company is conserving its cash.
<PAGE>
Liquidity and Capital Resources
Period from December 1, 1999 to May 31, 2000
The Company's net cash provided (used) by operating activities was $63,453
and $(244,483) for the second quarter ended May 31, 2000 and May 31, 1999,
respectively. The net cash provide by investing activities was $64,249 and
$225,483 for the six months ended May 31, 2000 and 1999, respectively. The
cash provided by investing activities in 2000 was from the sale of surplus
equipment, and in 1999, it was from the sale of a property. The capital
expenditures were for capital improvements to the sand project. The Company
(decreased) increased its debt by $(106,623) and $30,548 for the six months
ended May 31, 2000 and 1999, respectively. The Company's cash and cash
equivalents increased by $21,079 and $11,104 for the six months ended
May 31, 2000 and 1999, respectively.
The Company had working capital deficits of approximately $4.66 million
and $4.35 million for the six months ended May 31, 2000 and the year ended
November 30, 1999, respectively. The working capital deficit increased as
a result of the operating losses. As part of the Company's program to
conserve cash in order to operate the company, part of the salaries due to
the officers of the Company, all of the deferred compensation due to the
deceased chairman's spouse and the part of the interest due on certain loans
were accrued but not paid for the six months ended May 31, 2000 and 1999,
respectively. As of May 31, 2000, these accruals (salaries, deferred
compensation and deferred interest) exceeded $2.9 million.
For the current year, the Company plans to continue to accrue part of the
obligations described in the paragraph and expects to continue to generate
sufficient cash flow to operate.
Forward-Looking Statements. The Company may from time to time make written
or oral "forward-looking statements", within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
contained in this Form 10QSB and in other documents filed by the Company
with the Securities and Exchange Commission and in its reports to
stockholders, as well as elsewhere. "Forward-looking statements" are
statements such as those contained in projections, plans, objectives,
estimates, statements of future economic performance, and assumptions
related to any of the forgoing, and may be identified by the use of
forward-looking terminology, such as "may", "expect", "anticipate",
"estimate", "goal", "continued", or other comparable terminology. By their
very nature, forward-looking statements are subject to known and unknown
risks and uncertainties relating to the Company's future performance that may
cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from those expressed or implied in
such "forward-looking statements". Any such statement is qualified by
reference to the following cautionary statements.
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The Company's business operates in highly competitive markets and is subject
to changes in general economic conditions, competition, customer and market
preferences, government regulation, the impact of tax regulation, foreign
exchange rate fluctuations, the degree of market acceptance of the products,
the uncertainties of potential litigation, as well as other risks and
uncertainties detailed elsewhere herein and from time to time in the
Company's Securities and Exchange Commission filings. This Form 10QSB
contains forward looking statements, particularly in the section: Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in some of the footnotes to the financial statements. Actual
results could differ materially from those projected in the forward looking
statements as a result of known and unknown risks, uncertainties, and other
factors, including but not limited market acceptance of the Company's
products and services, changes in expected research and development
requirements, and the effects of changing economic conditions and business
conditions generally. The Company does not undertake and assumes no
obligation to update any forward-looking statement that may be made from
time to time by or on behalf of the Company.
PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27
(b) Reports - None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
RESERVE INDUSTRIES CORPORATION
(Registrant)
/s/ William J. Melfi
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William J. Melfi, Vice President
Finance and Administration
(Principal Financial and accounting
Officer and Authorized Officer)
Date: July 14, 2000
